(Reuters) – Fast-moving developments on Ukraine and Europe will no doubt continue to dominate financial markets in the coming week, while U.S. data includes key inflation numbers and China looks determined to hold its ground as trade tensions ratchet up.
Here’s all you need to know about the week ahead in world markets from Lewis Krauskopf in New York, Kevin Buckland in Tokyo and Karin Strohecker, Dhara Ranasinghe and Alun John in London.
1/ EUROPE’S MOMENT
Vladimir Lenin’s saying that there are decades where nothing happens, and weeks where decades happen is resonating with markets. Speedy developments across Europe reinforce this.
Faced with Russia’s war in Ukraine and fears of U.S. isolationism, Germany plans to unleash a defence and infrastructure spending bonanza in one of its biggest political shifts since the Berlin Wall fell in 1989, Europe seeks to borrow up $158 billion to lend to governments for rearmament.
The significance is not lost on markets. The euro and shares are surging; so are German bond yields as investors bet more spending means more borrowing.
Suddenly, the U.S. lead in long-term trend growth is no longer a given. Investors are re-rating European assets, U.S. shares are falling. Yes, the road ahead is long and bumpy but the feeling of a sea change across Europe is hard to ignore.
2/ ROCKY ROAD
The state of relations between Trump and his Ukrainian counterpart Volodymyr Zelenskiy have whipsawed the country’s international bonds – but the impact has been felt beyond its borders, shaping and shaking markets across the region.
Trump’s special envoy, Steve Witkoff, said he is in talks with Ukraine for a peace agreement framework to end hostilities with Russia and a meeting is planned in the coming week with the Ukrainians in Saudi Arabia.
It is unclear what a peace deal could mean for Ukraine, but an end to the war is seen as positive for economies in the region. But Germany’s borrowing “bazooka” and the bond selloff are pushing up borrowing costs, raising price pressures for a region that has seen a number of negative inflation surprises. Poland’s central bank will set interest rates on Wednesday, though cuts are only on the horizon for the second half of 2025.
While the White House is reportedly seeking a plan for sanctions relief on Russia and preparing for a Trump-Putin summit, European finance ministers will meet Tuesday to discuss economic impact of Russia’s aggression.
3/ THE R WORD
Global growth concerns have shot back onto the markets’ radar as weakening U.S. data and growing trade tensions hurt consumer confidence and business activity.
Even second tier U.S. data will be closely watched, while the Bank of Canada could cut rates when it meets on Wednesday.
Trump on Thursday suspended tariffs of 25% imposed just days earlier on most goods from Canada and Mexico, but his fluctuating trade policy continues to fan worries about inflation and growth.
Morgan Stanley estimates U.S. tariffs on China, Mexico and Canada as proposed could shave 0.7-1.1 percentage points off U.S. growth in coming quarters, deliver a 2.2-2.8 percentage point hit to Canadian growth, and push Mexico into recession.
Brent crude has hit its lowest since December 2021, the safe-haven yen is around its strongest in five months, , and the Nasdaq is around five-month lows.
4/ FEELING HOT?
Wednesday’s U.S. consumer price report could fan investor fears about still-warm inflation just as President Donald Trump’s tariffs on key trading partners could provide a jolt to domestic prices.
The February consumer price index is expected to have climbed 0.3% on a monthly basis, according to a Reuters poll. The January CPI jumped 0.5%, the biggest gain since August 2023, as Americans faced higher costs on goods and services.
Another hot reading could confound recent bets on more Federal Reserve rate cuts this year. Traders recently priced as many as three cuts as economic slowdown worries grew.
Investors are also uneasy about trade policy and the inflationary impact of tariffs if they stay in place.
5/ TARIFFS? BRING IT ON
On Trump’s list of tariff targets, China stands out – not least for how well its markets have weathered the tumult.
China’s central bank has deftly guided the yuan in a stable range against the dollar; Hong Kong’s Hang Seng index is up 21% this year, making it the best performing major global market. And that’s without the kind of reprieves that Washington has afforded Ottawa and Mexico City.
In fact, Beijing is girding for even higher levies, kicking off its week-long session of the National People’s Congress on Wednesday by promising more stimulus to boost private consumption and tech innovation.
Inflation figures over the weekend and loan data in the coming days offer the latest reading of the consumer pulse.
Meanwhile, Chinese startups continue to draw attention, with the release of fully fledged AI agent Manus, less than two months after DeepSeek stunned the world.
(Graphics by Kripa Jayaram, Sumanta Sen, Vineet Sachdev and Pasit Kongkunakornkul; Compiled by Dhara Ranasinghe; Editing by Toby Chopra)
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